World

The Budget Debate in 6 Simple Graphics

The federal budget is incomprehensibly large: $3.5 trillion to fund everything from benefits payments to courts to cops to education to research. There are hundreds of ways to slice it up, but some of the simplest come from the nonpartisan agency in charge of analyzing the budget, the Congressional Budget Office.

Here are six graphics CBO Director Doug Elmendorf used in a recent lecture to students at Harvard University, along with how they help to understand the nation’s fiscal situation.

How Serious Is the Debt Problem?

There’s a heated debate over how much debt is too much, but most agree that the long-term trajectory is not good. The debt is expected to rise, fall and rise again before the decade is out. It's high, but not high enough to describe as an immediate crisis–at least not according to House Speaker John Boehner, Budget Committee Chairman Paul Ryan or President Obama. In the longer term, however, the debt is expected to balloon.

Entitlement Spending Drives the Debt

The biggest threat to the nation’s long-term fiscal health is entitlement spending. More than one third of all spending last year went to just two programs: Social Security and Medicare. In other words, 34% of all spending benefitted seniors. And spending on those and other entitlements is only going to continue to grow, as baby boomers grow older and healthcare costs rise.

The growth in healthcare spending is expected to outpace that of Social Security, but that program isn’t immune from concerns over its solvency either, experts argue. Most federal spending is dedicated to such mandatory programs–those whose funding does not have to be reapproved each year. Here’s a breakdown of mandatory spending from last year:

The Other Debt Driver: The Debt

our explanation from March:

It’s an underappreciated fact that a significant contributor to the ballooning debt is ... the debt itself. Federal interest payments are projected to grow faster over the next decade than any other broad category of expenditures, outpacing spending on Medicare, Medicaid and Social Security. Even a small, sudden shift in the interest rate on government debt could inflate deficits by trillions of dollars over the next decade.

Interest owed by the government is small relative to other spending, but the slope on the "net interest" line in the graph below shows how fast it is expected to grow in the coming decade relative to other spending categories.

The Shrinking Government

Not all of government spending is set to expand. Spending on one category — non-defense discretionary programs — is set to reach historic lows.

It’s a mouthful, but nondefense discretionary spending is just a fancy way to describe what most people think of when they think about the federal government–law enforcement, education, transportation, national parks, research, welfare programs, etc. It's basically any type of spending that isn't mandatory or defense-related.

Under any of the plausible budget paths–the status quo or any of the plans from the Senate Democrats, House Republicans, or the White House–nondefense discretionary spending as a share of the economy is set to reach historic lows. As the economy and population expand, many of the federal government’s programs will continue to receive roughly the same level of funding.

The graphic below breaks down defense and nondefesense discretionary spending–categories of spending that, unlike mandatory spending, must be reapproved annually.

Current Spending and Revenue

Federal revenue was historically low last year, while spending was historically high–two factors that contributed to an unusually dour-looking short-term outlook. But short-term budget snapshots are deceiving.

The U.S. Treasury recently announced some positive news in light of last year’s large deficit: It would, for the first time in six years, pay down some small portion of its debt. But that good news is expected to be short-lived, too, thanks to only-temporary effects of more revenue and less spending.

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